Russia鈥檚 invasion of Ukraine has implicated Russia’s high-scale energy exportations given sanctions by the country鈥檚 main consumers, per .
Chris Bake, who is a parent at the school and Head of Origination at commodity trading company , said sanctions on Russia have significantly shifted the dynamic of the energy industry.
鈥淭he effects of the invasion and the consequence of the consequential sanctions that were imposed on Russia and the reciprocal curtailment of gas by Russia to Europe, for geopolitical reasons, is having a profound effect on industry and power generation in Europe,鈥� he said.
Russia and Ukraine tensions
The Russia-Ukraine conflict escalated Dec. 21, 2021, when Russia鈥檚 foreign ministry established multiple commands to the North Atlantic Treaty Organization (NATO), an intergovernmental military alliance between 30 member states, according to .
To abstain Ukraine from joining NATO and neutralize Ukrainian military efforts, Russian President Vladimir Putin announced Russia鈥檚 invasion of Ukraine Feb. 24, according to .
Bake said he suspected tensions would rise following the in 2014. Still, Bake said that Russian forces surpassed his expectations in terms of how far into Ukraine they invaded.听
鈥淧ost Crimea, there was a crisis brewing, but I for one never believed Russia would actually invade beyond the Donbass-Luhansk region of Ukraine,鈥� he said.
Post Crimea, there was a crisis brewing, but I for one never believed Russia would actually invade beyond the Donbass-Luhansk region of Ukraine.
— Vitol Head of Origination Chris Bake
Impact of sanctions聽
According to the , the Russian invasion caused a large-scale humanitarian crisis. The conflict and resulting sanctions disrupted exports from Russia for commodities such as metals, food, oil and gas, leading to unprecedented levels of demand.
Bassel Ojjeh (鈥�25) said he worries about the resulting effects of increasing pricing on those with difficult financial circumstances.
鈥淭he situation is tough for many people living in the U.K. and around Europe as we are witnessing a massive increase in inflation prices across this region,鈥� he said.
Ojjeh said oil and gas are necessary commodities and repercussions are bound to be present as a result of prices rising.
鈥淲e are talking about necessary items that people need on a regular basis,鈥� he said. 鈥淗onestly, there is no going without saying that from a financial perspective, the U.K. will deal with these added costs.鈥�
Similarly, Johannes van Zuydam (鈥�23) said the knock-on ramifications of increasing prices is observable, with the inflation rate reaching up to 13.2% in the U.K, according to the .
鈥淚t鈥檚 simply unrealistic to think that salaries will be adjusted to that level in such a short period of time,鈥� he said. 鈥淭his situation is destined to have long-lasting negative effects.鈥澛犅�
Monetary implications
Social Studies Teacher Duncan Pringle, who teaches AP Economics, said the crisis has impacted the value of the British Sterling. Pringle said tax cuts of billions of pounds of emergency relief poured into the energy sector. As a result, the value of the pound has plummeted and is currently $1.13 against the pound, according to .听
Pringle said the lower value of the pound will 鈥渇urther fuel inflation because imports will become more expensive.鈥�
Bake said each country鈥檚 level of dependency on Russian gas from Russia varies.
鈥淭he amount of gas coming from Russia is part of the total European balance,鈥� he said.
In addition, Pringle said although the U.K. is less dependent on Russia for energy supply, there are still implications due to the standard market price of such commodities.
鈥淎lthough the U.K. is less susceptible to disruptions in the Russian gas supply chain than other countries in Europe, we still buy our gas at the market price of the world,鈥� he said.
Further, Pringle said the U.K. must deal with the effects of higher prices internationally which subsequently causes them to take on additional debt. This added debt negatively impacts the U.K. when they borrow money due to an increase in interest rates.听
鈥淭he U.K. government’s ability to borrow money as a result of the markets didn’t look very favorable on measures they announced,鈥� he said. 鈥淭here is also an additional amount of debt being taken and the interest payments on that debt are going to become more expensive. It seems as if the markets are losing confidence in the British government’s ability to repay owed money.鈥�
Gas is priced against a benchmark called , a clearing point based in the Netherlands that determines the gas price. Following the crisis, there was a clear impact on the pricing of gas as it rose exponentially, according to .
Pringle also said the rising cost of gas will greatly impact individuals, especially given the current severity of inflation.
鈥淚t comes at a really bad time when inflation is already spiraling,鈥� he said. 鈥淓nergy bills are through the roof, having a huge impact on people, obviously, particularly in poor sections of society.
厂辞濒耻迟颈辞苍蝉听
Since the invasion, Liquefied Natural Gas (LNG) is the primary source of gas in the U.K. following the decrease in Russian supply via pipelines, per .听
Bake said the current supply situation in the U.K. is looking relatively positive, with the main concern being whether the country can maintain a sustainable energy source without any reliance on Russia.
鈥淭he U.K., up until recently, was self-sufficient gas because it had multi-production,鈥� he said. 鈥淣ow, its gas balances are maintained because it has incremental LNG supply and LNG storage in the U.K., and it has the pipeline connection to Europe. But, the issue is whether the U.K. can continue to flow gas to Europe through the winter or not, depending on its own supply.鈥�
Van Zuydam said countries are progressing in their efforts of establishing a more renewable energy system to propel sustainability goals. Currently, he said LNG would be a viable alternative for Russian pipeline supplies.听聽
鈥淟NG is a very possible alternative in the meantime as we shift towards renewable sources, especially when considering the fact that Russian exportation has taken a hit,鈥� he said.
“LNG is a very possible alternative in the meantime as we shift towards renewable sources, especially when considering the fact that Russian exportation has taken a hit.”
— Johannes van Zuydam (鈥�23)
Bake said the crisis has sparked an unprecedented demand for LNG by countries looking to lessen their dependence on Russia.
鈥淭here is a huge move to try and supplement pipeline gas from Russia with LNG, which will put stress on LNG demand in Asia,鈥� he said. 鈥淏ecause pipeline gas from Russia currently playing west can’t go east and the west is going to, there’s going to be a price competition between the West and Asia to buy incremental LNG.鈥�
However, according to the , the LNG and other alternatives are not as straightforward as regular pipeline exportation, and the process is more expensive.
Bake said he has noticed a desire for LNG projects in the attempts of finding alternatives to Russia鈥檚 pipeline exportation.
鈥淲e鈥檝e seen at least five additional projects table this year, two potential in Holland, two in Germany and wanting in the Mediterranean between Italy and for France,鈥� he said. 鈥淪o, there is a huge move to try and supplement pipeline gas from Russia with LNG.鈥澛�
Ojjeh said the magnitude of the invasion cannot be measured due to wider uncertainty around impact and the conflict鈥檚聽 end.
鈥淭here’s no way for us to know how badly this invasion will affect the rest of the world,鈥� he said. 鈥淔or now, we can see what has happened with the global shortage in Russian supplies because of sanctions but we don鈥檛 know how long this will go on for and to what extent we鈥檒l be needing to deal with these impacts.鈥�
